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Hedge Funds Are Crazy About Peabody Energy Corporation (BTU)

Concerns over rising interest rates and expected further rate increases have hit several stocks hard since the end of the third quarter. NASDAQ and Russell 2000 indices are already in correction territory. More importantly, Russell 2000 ETF (IWM) underperformed the larger S&P 500 ETF (SPY) by about 4 percentage points in the first half of the fourth quarter. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were paring back their overall exposure and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Peabody Energy Corporation (NYSE:BTU).

Is Peabody Energy Corporation (NYSE:BTU) an attractive stock to buy now? The best stock pickers are taking an optimistic view. The number of long hedge fund bets advanced by 10 in recent months. Our calculations also showed that btu isn’t among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Paul Singer ELLIOTT MANAGEMENT

Let’s check out the key hedge fund action surrounding Peabody Energy Corporation (NYSE:BTU).

How are hedge funds trading Peabody Energy Corporation (NYSE:BTU)?

At the end of the third quarter, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 42% from one quarter earlier. On the other hand, there were a total of 36 hedge funds with a bullish position in BTU at the beginning of this year. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with BTU Positions

More specifically, Elliott Management was the largest shareholder of Peabody Energy Corporation (NYSE:BTU), with a stake worth $1003.8 million reported as of the end of September. Trailing Elliott Management was Orbis Investment Management, which amassed a stake valued at $307.4 million. Contrarian Capital, Platinum Asset Management, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.

Consequently, key money managers have jumped into Peabody Energy Corporation (NYSE:BTU) headfirst. Horseman Capital Management, managed by John Horseman, initiated the biggest position in Peabody Energy Corporation (NYSE:BTU). Horseman Capital Management had $9.1 million invested in the company at the end of the quarter. Carl Tiedemann and Michael Tiedemann’s TIG Advisors also made a $8.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital, and Steve Cohen’s Point72 Asset Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Peabody Energy Corporation (NYSE:BTU) but similarly valued. We will take a look at Seaboard Corporation (NYSEAMEX:SEB), Univar Inc (NYSE:UNVR), 2U Inc (NASDAQ:TWOU), and ONE Gas Inc (NYSE:OGS). This group of stocks’ market valuations resemble BTU’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SEB 9 68012 -1
UNVR 33 854211 0
TWOU 14 119179 -5
OGS 15 89424 1
Average 17.75 282707 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $283 million. That figure was $2.10 billion in BTU’s case. Univar Inc (NYSE:UNVR) is the most popular stock in this table. On the other hand Seaboard Corporation (NYSEAMEX:SEB) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Peabody Energy Corporation (NYSE:BTU) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: None. This article was originally published at Insider Monkey.

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